• Resurgent USD demand prompted some fresh selling around NZD/USD on Tuesday.
  • A softer risk tone exerted some additional pressure on the perceived riskier kiwi.

The NZD/USD pair lost some additional ground during the early European session and dropped to over two-week lows, around the 0.7145 region in the last hour.

The pair failed to capitalize on the previous day’s positive move, instead met with some fresh supply on Tuesday and now seems set to prolong its recent pullback from the highest level since early March. This marked the third day of a negative move in the previous four and was exclusively sponsored by a strong pickup in the US dollar demand.

Following the previous day’s sharp pullback from near two-week tops, the USD regained strong positive traction amid speculations that the Fed may be forced to raise interest rates sooner rather than later. Despite a surprise slowdown in US manufacturing growth, investors have started bringing forward expectations for higher interest rates in the US.

Apart from this, a softer tone around the equity markets provided an additional lift to the safe-haven greenback and acted as a headwind for the perceived riskier kiwi. With the latest leg down, the NZD/USD pair has now slipped below the 100-day SMA support and some follow-through selling will set the stage for a further near-term depreciating move.

Market participants now look forward to the US economic docket, featuring second-tier releases of Trade Balance and Factory Orders later during the early North American session. This, along with the broader market risk sentiment, will influence the USD price dynamics and produce some short-term trading opportunities around the NZD/USD pair.

Technical levels to watch

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